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Monday, August 17, 2015

UH OH: MORGAN STANLEY GLOBAL MACRO ECONOMIST: "the world is one shock away from recession"

... While China reported that its GDP grew exactly in line with its growth target of 7% in the first and second quarters this year, all other independent data, from electricity production to car sales, indicate the economy is growing closer to 5%.

That leaves the global economy perilously close to recession territory. In the first half of 2015, global economic output expanded by barely 2%, making it the weakest two-quarter period since the expansion began in mid-2009. Industrial production and world trade growth were flat, developments that in the past have corresponded with global recessions.

... This quarter there is little evidence to suggest that the global economy is breaking out of its first-half rut, with growth still stuck in the 2%-2.5% corridor. This means that the world is one shock away from recession. A debt-laden China is now the critical link, and another one- or two-percentage point decline in its growth rate could provide that shock. The currency devaluation last week, coming after a string of increasingly desperate and ineffective stimulus measures, added to the sense that the critical link is weak indeed.